In 1907, J.P. Morgan intervened to prevent the banks from bleeding out. Then, in 2008, policymakers stepped in to avert a total collapse of the banking system. Now, there seems to be a similar market dynamic in play.
But it is misleading to talk about those specific events as they were the analogies of historical moments. Because this time, many believe that digital currencies will write their history.
Throughout the months of March and April, three major US banks erupted, followed by investor panics and a potential recession. After the Fed’s interest decision surfaced with a 0.25% rate hike, news of regional banks on the brink has generated headlines.
While the Federal Reserve (Fed) and President Biden keep reassuring that the banking system is sound and resilient, but reality challenges their statements.
More Blood in The Water
Over 24 hours after the FOMC meeting, PacWest Bank ($PACW) and Western Alliance Bank ($WAL) have reportedly sought potential sales.
First Horizon Bank ($FHN) has canceled its merger with TD Bank citing regulatory concerns. Shares of banks have taken a nosedive – $PACW dropped over 50% while $WAL and $FHN fell 53% and 40%, respectively.
J.P. Morgan and other Wall Street powerhouses stepped in to stop the FRB’s financial meltdown.
A $30B bailout package was deposited to the bank from JPMorgan, Citigroup, Bank of America, Wells Fargo, Goldman Sachs, Morgan Stanley, BNY Mellon, PNC Bank, and State Street Corp.
Cryptocurrency or CBDCs?
A couple of scenarios are put onto the scene in the event of banking contagion leading to the failure of banks and economic depression. The major highlight, seemingly close to reality, is the potential rollout of a CBDC.
The US is reportedly exploring and developing the infrastructure of a digital dollar.
Last year, US President Joe Biden issued an executive order for the federal government to study the possibility of creating a central bank digital dollar. There is no official confirmation of any plans to launch a CBDC in the near future.
But the concept of a digital dollar is not in many regulators’ best interest. In his latest statement, Florida Governor Ron DeSantis said he would ban any CBDC in Florida if the US government issues one.
During a recent speech at a law signing event, Florida Governor Ron DeSantis expressed his opposition to the US government’s possible issuance of a central bank digital currency (CBDC). He warned that CBDCs threaten people’s financial privacy and could be used to block cryptocurrency.
DeSantis claimed that a CBDC would enable the imposition of ESG and social credit scores, significantly reducing people’s freedom in the US. He also stated that the US government’s motivation for issuing a CBDC is to make it the sole currency and eliminate the use of cryptocurrency, which they cannot control.
In line with his beliefs, DeSantis pledged to pass legislation prohibiting the use of CBDCs as money in Florida if the US government ever issued them. He argued that this move would ensure people’s financial independence and prevent the creation of a financial surveillance state where every transaction is monitored.
Cryptos Look Strong in Weak Market
Despite the recent turmoil in the banking industry, cryptocurrencies like Bitcoin and altcoins have continued to gain in popularity and adoption.
In fact, during the banking panics, the price of Bitcoin and other digital assets remained less unstable, while traditional banking stocks took significant dips.
Whether cryptocurrency or CBDCs can fix the current financial system remains controversial. While some argue that Bitcoin provides a decentralized and transparent alternative to traditional banking, others point to its volatility and lack of regulation as significant concerns.
On the other hand, a CBDC offers the potential for greater financial inclusion and efficiency, but its biggest flaw is centralizing the control of the monetary system in the hands of governments.